February 27, 2006 4:55 PM PST

Yahoo claims start-up stole trade secrets

Yahoo has filed a lawsuit against wireless content company MForma, charging the San Francisco-based company and a group of ex-Yahoo employees there with theft of trade secrets.

According to the lawsuit, which was filed Monday in a Santa Clara County state court, the group of seven former Yahoo employees copied large amounts of confidential business and technical data when they left the Web portal company, and brought it to use in their new positions at MForma.

Yahoo is seeking a temporary restraining order, barring MForma from using any of the business or technical data. The company wants a deeper understanding of how the information has been used before asking for damages, a Yahoo attorney said.

"We have been confronted with evidence that shows a handful of employees has abused our trust and respect," said Yahoo associate general counsel Reggie Davis. "We have been left with no recourse but to go to the courts."

In a statement, MForma Chief Executive Officer Jonathan Sacks said Yahoo "deserves the gold medal for hypocrisy," noting that the Web company had itself been recently sued on trade secrets grounds by Nuance Communications, after hiring a team of that company's employees.

"(Yahoo) is now so desperate over the fact that they are losing several experienced software engineers with years of experience in the mobile industry, that they are now taking the exact opposite legal position," Sacks said in the statement. "These cutting-edge, mobile-content engineers are leaving because MForma is a company of the future."

Drawing heavily from archived instant-messaging conversations in which the former employees discuss their plans, the lawsuit highlights the deeply competitive nature of the wireless content industry, in which start-ups compete with giants like Yahoo for relationships with phone carriers.

According to the suit, the defection of the tight-knit group of Yahoo engineers and business development staffers began with a single employee, who then began recruiting his former colleagues, in violation of contracts he'd previously signed with Yahoo.

As the team left, they took with them financial forecasts, business strategy documents and even Yahoo source code for technologies designed to send content efficiently to cell phones, the suit alleges.

Much of the evidence is drawn from back-and-forth instant messaging conversations conducted on company laptops. At several points, the employees switched to using similar chat software from AOL, apparently in an attempt to avoid detection, the suit claims.

MForma is an 800-person company that has focused primarily on games and music applications for cell phones, and provides content for carriers including Verizon Wireless, Cingular Wireless, Sprint, Vodafone, Orange and others.

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trade secret, Yahoo! Inc., business development, lawsuit, start-up

2 comments

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Xfire and Yahoo
Yahoo is claiming the same thing about xfire.
Posted by wazzledoozle (288 comments )
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No Big Loss
If these people were stupid enough to discuss things of this
nature on company computers I can't imagine them being much
of a loss to Yahoo.
Posted by djemerson (64 comments )
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